Abstract This paper investigates whether monetary and exchange rate policies are important for the success of major fiscal adjustments. We assess their role controlling for other determinants of success identified in the literature, including the size and composition of the deficit cut, the...

We study monetary and exchange-rate policies around successful and unsuccessful fiscal adjustments and find that successful adjustments are preceded by large nominal exchange rate depreciations, whereas unsuccessful adjustments are preceded by appreciations. Pre-adjustment depreciation is a...

We study optimal fiscal policy in a monetary union where monetary policy is decided by an independent central bank. We consider a two-country model with trade in goods and assets, augmented with sticky prices, labor income taxes and stochastic government consumption. It is optimal to finance a...

This paper investigates whether monetary and exchange rate policies are important for the success of major fiscal adjustments. We assess their role controlling for other determinants of success identified in the literature, including the size and composition of the deficit cut, the level of...